MANHATTAN — Many New Yorkers — except perhaps the superrich like Donald Trump and his family — may not not fare exceptionally well under the president’s proposals to cut taxes, most experts agree.
However, it’s hard to understand the potential impacts of Trump’s plan, which is little more than an outline, leaving many details to be filled in by Congress.
The framework states it "extends economic opportunities to American workers, small businesses, and middle-income families," but New Yorkers could suffer if the Trump administration follows through on its plan to remove deductions for state and local income and property taxes from federal tax returns.
Critics have said this plan rehashes Reagan-era trickle-down economics. Supporters believe the cuts will help grow the economy.
Watchdogs warn that the city’s affordable housing plans could be in jeopardy because of cuts to tax-exempt bonds that finance such projects. Many worry that budget reductions would follow the tax cuts, which means that services, from the subways to children's health care, could suffer even more.
Without important information, like designated income brackets, however, it makes it harder for think tanks to provide in-depth analyses and rebuttals, explained James Parrott, director of economic and fiscal policy at the New School's Center for New York City Affairs.
“They’re trying to keep critical elements secret as long as possible,” Parrott believes.
Here are some ways experts believe New York City could be affected.
Many New Yorkers could be hit hard by eliminating the state and local tax deductions.
Gov. Andrew Cuomo called called the framework “the height of hypocrisy,” saying that it’s actually a tax increase for New York.
“You have an administration that wants to cut taxes, and now they literally want to tax you on the taxes you pay,” he said last week in response to Trump’s announcement. “I believe it's unconstitutional. I believe it's illegal and I would challenge it as double taxation.”
An initial analysis from New York City Comptroller Scott Stringer estimated that 1.3 million households using these deductions could end up paying higher taxes, including nearly 60 percent of these households who have incomes below $100,000, making this a big hit to low- and middle-income New Yorkers.
Stringer’s analysis found that a family making $75,000 a year, for instance, might pay $1,800 more in taxes
Meanwhile, he said that the city’s millionaires would get an average tax cut of at least $113,000.
A preliminary analysis from the Tax Policy Center believes that the bottom 95 percent would see "modest" tax cuts, averaging 1.2 percent, in 2018.
By 2027, a quarter of all taxpayers, including nearly 30 percent of those with incomes between $50,000 and $150,000 and 60 percent of those making between $150,000 and $300,000, would see taxes rise. This group would be hit hard by the repeal of the deductions.
The conservative Heritage Foundation praised the decision to repeal the state and local tax deduction, saying the current provision benefits only a minority of taxpayers and forces people in low-tax states to "subsidize big-government" states such as New York.
But many local Republicans criticized the move.
While Dan Donovan, the city's only Republican U.S. Assemblyman, believes the tax cuts will create jobs, spur business investment and "put more money in the pockets of hardworking families," he wanted to make sure his constituents of Staten Island and Brooklyn benefited from tax relief and didn't "shoulder the burden" for cuts elsewhere in the nation, he said.
“I’m of course concerned about the state and local tax deduction," Donovan said in a statement, "and I’ll continue working with my colleagues as the legislation goes through the committee process."
An analysis from E.J. McMahon, founder of the Empire Center for Public Policy, a fiscally conservative think tank, said it is clear that a middle class couple in New York would see much smaller savings than their counterparts in lower-cost, lower-taxed states.
Tax cuts could hurt city services.
Many watchdogs believe Trump’s tax cuts would be used to justify budget cuts.
Despite promises that the cuts would pay for themselves, experts believe the deficit would increase because of the cuts.
“It’s very clear it’s a bait and switch,” Parrott said. “Then they would come back and say drastic budget cuts are needed — and those cuts would be devastating to New Yorkers.”
The cuts would be a “huge windfall” for the rich and a wash for the city’s middle class, with some coming out ahead and some behind, Parrott said. But in terms of the spending side of the equation, the budget cuts expected to follow would have a devastating impact on low-income families, middle class ones and children.
Medicaid, which covers 43 percent of New York residents, would likely be cut to offset the tax cuts, for example.
“The consequence: New York would fall apart. The trains would stop running. People wouldn’t want to live here,” Parrott said.
The city’s affordable housing plans could take a big hit.
It appears that federal tax-exempt housing bonds — which help leverage public and private investment to build housing — are at risk of being cut, which could spell big trouble for both the city and state’s plans to build more affordable units in the coming years.
These bonds are critical in building the city’s affordable housing and would limit the amount and range of low-income housing tax credits that developers use to build or refinance affordable housing.
“We are waiting for more details, but expect tax exempt bonds are at risk of elimination,” said Rachel Fee, of the New York Housing Conference. “They enable financing for most affordable housing being built in New York. This would be a disaster for the mayor's housing plan, future public housing [rental assistance demonstration] conversions as well as housing and economic development projects across the state.”
And it could hurt other aspects of the city’s real estate industry.
Ending the federal deduction for state and local property taxes — which has been in place since 1913 — could put a damper on the city’s real estate market, said John Banks, president of the Real Estate Board of New York.
“The elimination of the deduction of real property taxes for homeownership as an adjustment to home owners’ taxable income would make New York, and other states and cities across the country, less competitive for real estate investment,” he said.
Though the mortgage tax deduction is not slated for elimination, removing the other deductions would still likely hurt the middle and upper middle class New Yorkers looking to buy, said Aleksandra Scepanovic, managing director of Ideal Properties Group, which is one of Brooklyn’s largest real estate firms.
“It could potentially result in the loss of incentive for homebuyers and we could see reduced interest,” she said. “All real estate players, large and small, are feeling cautious, and are continuing to observe the proposal.”
The luxury market, however, might get a boost.
With the reduction in taxes putting money back into the city’s wealthiest, the now-faltering luxury market could pep up.
“It could potentially help reinvigorate the city’s luxury market,” Scepanovic said.
Edward Mermelstein, an international real estate attorney and financial advisor to wealthy foreign buyers and billionaires, said his clients — from countries like China, Russia and the United Arab Emirates — felt buoyed by the news.
“Any time there’s an announcement that taxes are being reduced, it’s positive from the perspective of overseas investors,” he said. “Of course, the devil is in the details [but] it bodes well for high net investors from developing countries.”
In the past few months, as talk about the possible tax plan has spread, Mermelstein has seen a rise in closing deal “handshakes” with a number of foreign billionaires buying properties and looking to preserve their wealth by investing in Manhattan, he said.
These investors, he added, park their money here because they believe there’s a stable political and economic climate.
New York might have to take drastic measures to stay afloat.
As New York braces for big cuts, politicians will have to make tough choices, many believe.
"We have long warned that New York City should be preparing for massive cuts to the safety net in order to pay for lower tax liability for the wealthiest,” Stringer said in a statement. "As the tax conversation in Washington evolves, I believe we need to have a constructive, thoughtful, public discussion about how we're going to prepare for the worst-case scenarios."
Parrott suggested that the city and state would need a bold response to “Draconian” tax cuts.
“They could have a temporary recapture tax, aimed at the people who would benefit most from the [federal] cuts,” Parrott said, explaining that a local tax measure could be enacted that would essentially bring wealthy New Yorkers' taxes to current rates and be used to prop up services here.
“We’re not asking them to pay more than [they're] paying today. It’s just that rather than this money going to federal government, it would go to New York,” he suggested. “In the end they’ll still be better off — and stay in New York. New Yorkers are a little more skeptical and cynical. They understand if there are budget cuts it would jeopardize the quality of life in New York.”